Orange County Business Journal

SRS Misses Q3 Targets; Lowers Sales Outlook

Chris Casacchia Thursday, November 3, 2011

Santa Ana-based SRS Labs Inc. on Thursday reported third-quarter revenue and profits that missed Wall Street estimates and lowered its sales outlook for the remainder of the year.

SRS, which makes software and other components that boost sound quality in audio devices, reported revenue of $8.4 million, down 2% from a year earlier.

Analysts on average had forecast revenue of $10 million.

The company posted a profit of $624,000, down 52% from a year ago.

Wall Street had expected profits of $1.8 million.

SRS also lowered its revenue outlook for the current quarter by 6% to 10%.

Analysts are forecasting a $1.8 million profit on $10.2 million in sales for the current quarter.

Shares of SRS held about steady in the wake of the announcement, with a market value of about $102 million.

The company specializes in surround sound, audio rendering and voice processing and licenses its technology to consumer electronics makers, home theater builders, computer game developers, car makers and others.

Sales growth in mobile devices in the September quarter was offset by “macroeconomic conditions,” driven by the sluggish U.S. recovery, and debt concerns in Greece and other European countries, according to SRS Chief Executive Thomas Yuen.

“Throughout the first half of the year, industry expectations and our customers’ forecasts led us to believe that the market was headed towards a quicker recovery than experienced so far,” Yuen said. “Many of our TV manufacturing customers failed to meet their production forecasts and delayed launch of several new models.”

PC sales remained tempered in the recently ended quarter, Yuen said, amid sales growth of Cupertino-based Apple Inc.’s iPad and other tablets on the market.

According to Yuen, SRS’ automotive segment also took a hit, an ongoing effect of Japan’s earthquake and tsunami in March, which interrupted automobile production for several months.

He cited the lackluster U.S. economy, monetary crisis in Europe, and softer than anticipated consumer spending for the remainder of the year, for lowering the company’s revenue outlook.

SRS expects to see better earnings results in 2012 as mobile and PC sales improve and the company widens its market share lead in flat TVs, offsetting delays in new product designs from its suppliers, according to Yuen.

It counts some of the largest TV designers and makers as clients, including Irvine-based Vizio Inc., Samsung Group of South Korea and Japan-based Funai Electric Corp., which sells sets under the Philips brand in the U.S.

The company is projecting a revenue jump of 10% next year “with an improved operating model,” Yuen said.